Q4 2024 The Joint Corp Earnings Call
Thank you. Bye-bye.
Good afternoon and welcome to the Joint Corporation fourth quarter and year end 2024 financial results conference call. All participants will be in the listen only mode.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. And to withdraw your question, please press star and then two.
Please note that this event is being recorded. I would now like to turn the conference over to Kirsten Chapman, Alliance Advisors, Investor Relations. Please go ahead, ma'am.
Today, after the close of the market, the joint issued its results for the quarter and year ended, December 31, 2024. If you do not already have a copy of this press release, it can be found in the investor relations section of the company's website.
As provided on slide two, please be advised that today's discussions include forward looking statements within the meaning of the safe harbor provision to the private security's litigation reform act of 1995.
All statements other than statements of historical facts that may be considered
for Looking Statements
Although the company believes that these expectations and assumptions reflected in these forward-looking statements are reasonable
It can make no assurances that such expectations or assumptions will prove out to have been correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties.
As a result, we caution you against placing undue reliance on these board looking statements.
For discussions of the risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward-looking statements, please review the risk factors detailed in the company's reports on form 10K and 10Q, as well as other reports the company files from time to time with the SEC.
Finally, any Ford-looking statements included in this earnings call that are made only as of the data this call, and we do not undertake any obligation to revise our results or publicly release any updates to these Ford-looking statements in light of new information or future events.
The results of operations of the corporate clinics business segment have been classified as discontinued operations for all periods discussed and the following comments represent continuing operations unless otherwise stated. [inaudible]
Management uses EBIDA and adjusted EBIDA, which are non-financial measures. These are presented because they are important measures used by management to assess financial performance.
Man and Trent Belize, they provide a more transparent view of the company's underlying operating performance in operating trends than GAAP measures alone.
Reconciliation of Net Income to EBITDA and adjusted EBITDA is presented in the press release. The company defines EBITDA as net income or loss before net interest
The company defines adjusted EBIDA as EBIDA before acquisition related expenses, which includes contract termination costs associated with re-acquired regional development rights.
Stock-based compensation expense, bargain purchase game, net gain or loss on disposition or impairments, costs related to restatement filings, restructuring cost, litigation expenses, consisting of legal and related fees for specific proceedings that arise outside of an ordinary course of our business.
and another income related to the Employee Retention Credit.
Management also includes commonly discussed performance metrics. System-wide sales include revenues that all clinics, whether operated by the company or by franchisees.
While franchise sales are not recorded as revenues by the company, management believes that information is important in understanding the company's performance because these sales are the basis on which the company calculates and records royalty fees and are indicative of the financial health of the franchisey base.
Systemwide Comp Sales include revenues from both company owned or managed clinics and franchise clinics that in each case have been open for at least
13 or 48 full months and exclude any clinics that have been closed. Turning to slide three is my pleasure to turn the call over to Sanjiv Razdan. Please go ahead sir.
Thank you, Custon, and I welcome everyone to the call.
turning the slide forward.
Speaker Change: I'm excited to join you for my second conference call with the joint in which I committed a sharing observations for my first 100 days and the strategy we have since devised as a team.
Speaker Change: I will outline our plan and the tactics we have already started deploying in 2025.
Speaker Change: We are on our way to strengthen our position as the leading chiropractic care provider, become a pure play franchise or grow sales, reduce overhead and improve profitability.
Speaker Change: During my comprehensive analysis of the company, I stepped back and holistically looked at our business from every angle.
Speaker Change: I also extensively studied the data on chiropractic care, adjacent industries as well as from our own company.
Speaker Change: I found the joint to be a highly differentiated scale player with a strong core, albeit facing some near-term challenges.
which is actually encouraging news.
Speaker Change: We can leverage our core competencies and brand strengths while we systematically address these concerns, increasing profitability and creating shareholder value.
In a moment, Jake will review our 2024 KPIs.
Jake: Yes, I'd like to call out that we serve close to a million new patients last year, 950,000 to be exact.
Speaker Change: Having worked in franchising for decades, I can tell you to achieve almost one million new users in one year for a business of our scale is outstanding.
Speaker Change: The joint is clearly making a difference in the health and wellness industry in general and the chiropractic profession in particular and I'm so incredibly proud to have joined the cause.
Art strands include science, originality, and longevity.
Speaker Change: Capitalizing on our first mover advantage, we have over 960 clinics making the joint larger than our next 10 competitors combined.
Speaker Change: The magnitude of our scale yields brand awareness and easy consumer access, as well as provide the economies of scale in management and marketing. And we believe there are more opportunities for clinic growth with wide space for an additional 1,000 clinics here in the US alone.
in addition to international opportunities.
Speaker Change: We stand alone in our operating model with convenient retail locations, adjustment only chiropractic care available without appointments with affordable cash pay with clinics open on weekends and evenings.
Speaker Change: A unique position enables both single unit and large multi-unit franchisees to be successful, which is pretty uncommon among franchise systems.
Speaker Change: and we have proven that our model works very well at our average clinic volumes and delivers healthy clash floor for our franchisees.
Speaker Change: That said, we have been clear over the last couple of years, we have endured some consumer headwinds and inconsistencies in execution.
Speaker Change: These include variability in the quality of patient experience, inefficiencies in regional co-op and local clinic marketing execution.
Strains in franchisee relationships.
Speaker Change: Challenges and retention of doctors of chiropractic, playing catch-up on the tech platform and lower volume bottom quartile clinics.
Speaker Change: As a result, the time for a new clinic to break even has extended and more clinics than we would like, are not comping negative.
Speaker Change: We have robust tactics in place to address these issues, some of which we have already begun implementing, and all of which are the grow revenue or improved profitability for both our franchisees and our company.
Dunning to slide five.
Speaker Change: We will absolutely double down on our mission of improving the quality of life through routine and affordable chiropractic care.
Now, we also have a new big board vision.
Speaker Change: to become America's most accessible, Health and Wellness Services Company. I repeat to become America's most accessible, Health and Wellness Services Company.
Speaker Change: Before I share with you how we intend to do this, I'll provide a quick review of our progress to date.
Dunning to slide six.
I am pleased to report we have growing sales momentum.
Speaker Change: For 2024, system-wide sales increased to $530.3 million, up 9% in Q4 2024, compared to 8% in Q3 2024.
Speaker Change: Systemwide Comp Sale for All Clinics Open 13 Month was 6% in Q4 2024, compared to 4% in Q3 2024.
Speaker Change: System-wide CAHM sales for mature clinics opened 40 months, 48 months were modestly positive for Q4 2024 compared to negative 2% in Q3 2024.
Speaker Change: Revenue for our continuing operations increased 14% in Q4 2024 up from 10% in Q3 2024.
Speaker Change: Consolidated Adjusted Da was $3.3 million for Q4 2024 and $11.4 million for 2024.
Speaker Change: We believe 2025 will be a year in transition financially as a clinic shift from 100% accounted for as corporate-owned or managed to franchise clinic model of royalties and fees.
Speaker Change: Additionally, we have plans to reduce unallocated expenses as we shed corporate clinics.
Turning to Slide 7
We have constructed a multi-year phase approach.
Speaker Change: In our next phase of growth or joint 2.0, we will focus on strengthening our core, re-igniting growth and improving both clinic and company level profitability.
Speaker Change: We will refranchise, enabling us to be focused on becoming a world-class pure play franchise or reduce overhead and increase operating leverage.
Speaker Change: We will drive revenue growth by initiating dynamic revenue management, strengthening our digital marketing and promotional calendar and catching up on patient facing technology.
Speaker Change: Altogether, we believe that this phase will take us about 12 to 18 months to complete.
Speaker Change: And while we do all this in the spirit of being an agile, innovative organization, we will begin building infrastructure and test and validate elements of other revenue drivers that would shape the joint 3.0.
Speaker Change: In the next phase, which we are referring to as Joint 3.0, we will capture new revenue streams by creating additional sales channels and growing in new markets.
Speaker Change: Possibilities under evaluation include expanding into system-wide enterprise or business accounts. In other words, building a B2B business to complement our currently pure B2C business.
Speaker Change: shifting from playing catch-up on patient-facing technology to building a tech-differentiated competitive mode, unlocking dense urban markets, monetizing new clinical service or services even and chiropractic usage occasions, and exploring opportunities to sell retail products in our clinics.
For more information visit www.FEMA.gov
Turning to Slide 8
Speaker Change: To strengthen our core and reignite growth, we are placing patience at the heart of everything we do.
Speaker Change: Our Strategic Priorities in 2025 as part of Joint 2.0 begin with building our people capability and culture to support our clinics, our team, our franchisees and our growth.
Speaker Change: We will focus on nurturing talent, strengthening engagement, attracting and retaining the best doctors of chiropractic, and shifting our mindset to being a pure play world-class franchise
Speaker Change: Strong people and culture both at our clinic support center and at our franchisee clinics will enable us to excel in the patient experience.
Speaker Change: By optimizing care delivery and patient touch points, we expect to increase both patient engagement and membership longevity.
Speaker Change: This will fuel a most effective and cost-efficient patient acquisition tool referrals.
Speaker Change: More advocacy among our patients gives us the foundation to turbo charge sales and profits for both our franchisees and the company.
Speaker Change: Also, as we refranchise, we will significantly reduce unallocated overhead expenses that will improve the bottom line.
in parallel.
Speaker Change: With working on sales and profits, we will reignite clinic network growth. We are updating our key development processes to ensure stronger new clinic performance so that as we complete refranchising, we pivot to driving sustainable, new clinic growth in the massive white space we have.
We will also simultaneously innovate and broaden our relevance.
Speaker Change: by refreshing our brand communications and brand architecture, start to pre-platform the tech stack and explore new, chargeable options for patient clinical care.
Dunning to slide nine.
Speaker Change: We are upgrading our commitment to refranchising and are striving to be a world class pure play franchise or this will sharpen management focus by reducing the distraction and expense of operating corporate owned or managed clinics.
Speaker Change: Additionally, we are leveraging the opportunity of refranchising to bring into our systems some strong new multi-site operators.
Speaker Change: I am excited about our progress. We are in the final stages of executing letters of intent for the vast majority of our corporate portfolio.
Speaker Change: We will deploy capital to improve our profitability profile, upgrade our tech stack and create
Speaker Change: By acquiring regional developer territories, we could reduce R.D. commissions and expand our operating margin.
Speaker Change: The board will also evaluate means to drive further growth and return value to shareholders in other ways which may include stock repurchase.
Turning to slide 10, let's review our revenue drivers.
Through Dynamic Revenue Management and thoughtful pricing,
Speaker Change: We expect to optimize the price per visit for all of our product offerings while still offering our patients the best value.
Speaker Change: By strengthening digital marketing, we expect to improve organic leads and brand awareness.
Speaker Change: Increase co-operfectiveness and spending to drive brand consideration and develop effective targeting strategy for our core patient targets.
Speaker Change: by strengthening our promotional calendar. We expect to deliver profitable sales growth for our clinics.
Speaker Change: By upgrading patient-facing technology, we expect to better engage and satisfy our patient members.
Speaker Change: A new mobile app anticipated to be in the app store by the end of Q2 2025 would provide a more frictionless experience with features like clinic finder, see which doctor is working today in clinic check-in and push notifications.
With that, I'll turn the call to Jake.
Jake: Thanks Sanjiv, let's turn to slide 12 and let's discuss our operating metrics.
Speaker Change: During 2024, we performed 14.7 million patient adjustments, 8% more than in 2023.
Speaker Change: We treated 1.9 million unique patients during the year of which 957,000 were new to the joint.
Speaker Change: of that 36% that were new to chiropractic care, many converted to membership, and 85% of our system-wide growth sales came from monthly membership in 2024.
Speaker Change: Systemwide Sales were up 9% in 2024, compared to 12% in 2023.
Speaker Change: System-wide COMP sales for all clinics open 13 months were 4% for both years.
Speaker Change: Comp sales trended up from the second quarter and third quarters of 2024 reaching 6% for the fourth quarter and demonstrating our positive momentum.
Speaker Change: Systemwide Comp Sales for mature clinics, open 48 months were negative 2% for the full year, yet improved from negative 2% in Q3 to modestly positive for Q4, and we are pleased with this upward trend.
Speaker Change: As previously indicated, we expected franchise license sales to be impacted by our re-franchising strategy. During 2024, we sold 46 franchise licenses compared to 55 in 2023.
Speaker Change: At year end we had 16 regional developers covering approximately 57% of the network and we had 145 franchise licenses in active development.
Turning to slide 13. Let's discuss our clinics.
Speaker Change: In 2024, we opened 57 Franchise Clinics, Refranchise 3 Clinics, and closed 18 Franchise Clinics, including three relocations that will be reopened.
Speaker Change: and seven corporate clinics, including three non-traditional corporate units on Air Force bases.
Speaker Change: At December 31st, 2024, we had 967 clinics of which 842 or 87% are franchise clinics.
[inaudible]
Turning to Slide 14. I'll review our financial results.
Speaker Change: At year end, we recorded the corporate-owned or managed clinics as discontinued operations for 2024 and recast 2023 for an apples to apples comparison.
Speaker Change: In 2024, this resulted in the elimination of $70.2 million in Associated Revenue, $66.5 million in Associated S-GNA.
Speaker Change: $10.4 million in associated impairment for a net loss from discontinued operations of $7 million. As Sanjiv mentioned, 2025 will be a year of transition as we conclude the refranchising efforts.
Speaker Change: Financial for the historical periods presented, we have not yet experienced the benefit from our corporate clinic revenues transitioning to royalties and fees from franchise clinics.
Speaker Change: In addition during these historical periods, we have not been able to fully reduce our unallocated DNA expense. We are critically focused on reducing the DNA profile, which will improve the bottom line greatly in the coming years.
Speaker Change: Essentially what we're trying to signal is that we will shed more overhead compared to what is currently reported in our continued operations. And we expect to make meaningful expense reductions and improve our profitability profile.
Speaker Change: In 2026, we expect a further grow, net new clinic openings, system-wide sales, comp sales, and adjusted EBITDA.
Speaker Change: Now I'll review our continuing operation financial results for Q4 2024 compared to Q4 2023.
Speaker Change: Revenue from Franchise Operations reached $14.4 million compared to $12.7 million. The 14% increase reflects the greater number of clinics in operation and continued organic growth.
Speaker Change: Cost of revenues were $3.2 million, up 12% over the same period last year, reflecting the associated higher regional developer royalties and commissions.
Speaker Change: Selling and marketing expenses were $2.7 million compared to $1.7 million. Reflecting our strategic decision to continue to support our recently started effective marketing campaign and by increasing our working media spend.
Speaker Change: Hosting our biennial franchise conference and incurring carrying cost as we set up a new marketing agency.
Speaker Change: Depreciation and amortization expenses increased 5% compared to the prior year period.
Speaker Change: DNA expenses were $7.2 million, compared to $6.9 million in the same period last year.
Speaker Change: During the quarter, we accrued for a medical malpractice settlement of $1.5 million.
Speaker Change: The increase also includes employee bonuses, senior management, search and restructuring costs, IT maintenance and support, and audit costs, partially offset by one time expenses in 2023.
Speaker Change: Income Tax Expense with $37,000, compared to $11.3 million in Q4 2023.
Speaker Change: Net income from continuing operations was $986,000 or 6 cents per diluted share, improving from a loss of $10.2 million or $69 cents per basic share in Q4 2023.
Speaker Change: I'll provide adjusted EBITDA for three categories, for continuing operations, discontinued operations, and consolidated operations.
Speaker Change: Adjusted EBITDA for continuing operations was $2.1 million, compared to $2.2 million.
Speaker Change: Adjusted EBITDA for discontinued operations was $1.2 million compared to $1.8 million and adjusted EBITDA for consolidated operations where $3.3 million compared to $4 million.
Speaker Change: on to slide 15. I'll review our balance sheet and cash flow.
Speaker Change: At December 31, 2024, our unrestricted cash was $25.1 million, compared to $18.2 million, at December 31, 2023.
Speaker Change: Cashflow from both continuing and discontinued operations was $9.4 million.
Speaker Change: The net proceeds of the sale of three clinics were partially offset by ongoing IT capex and a $2 million Q1 2024 repayment of the line of credit to JP Morgan Chase. Through this facility we've retained immediate access to $20 million through February of 2027.
Speaker Change: Federal tax return, net operating loss carried forward at December 31, 2024, was $9.1 million.
Speaker Change: On to slide 16 for a review of our financial results for 2024 compared to 2023.
Speaker Change: Revenue was $51.9 million compared to $47 million, up 10%. Net loss from continuing operations was $1.5 million or $10 cents per basic share compared to $10.8 million or $73 cents per basic share.
Speaker Change: Adjusted EBITDA for continuing operations with $2.4 million, compared to $4.5 million. Adjusted EBITDA for discontinued operations, including an adjustment of $1.5 million for legal settlement,
was $9 million compared to $7.7 million.
Speaker Change: Adjusted EBITDA for Consolidated Operations, where $11.4 million compared to $12.2 million.
on to slide 17. We are presenting 2025 guidance.
Speaker Change: System-wide sales are expected to be between $550 and $570 million, compared to $530.3 million in 2024.
Speaker Change: System-wide comp sales for all clinics open 13 months or more are expected to be in the mid-single digits compared to an increase of 4% in 2024.
Speaker Change: Consolidated Adjusted EBITDA to be between 10 and $11.5 million, compared to $11.4 million in 2024.
Speaker Change: The 2025 Consolidated Adjusted EBIT dot estimate includes an adjustment for approximately $4.4 million related to stock based compensation and depreciation and amortization and the company will factor in additional impairment or restructuring charges related to the refranchising should they occur.
Speaker Change: New Franchise Clinic openings, excluding the impact of refranchised clinics are expected to be between 30 and 40 compared to 57 in 2024.
Speaker Change: In 2025, franchise license sales and clinic openings are likely to be less than 2024 as we're working through the impact of our refranchising efforts. Further, we see the impact of economic headwinds, stubborn inflation, and a volatile consumer sentiment impacting the beginning of 2025.
Speaker Change: That said, as clinics shift from corporate owned or managed to franchise, there will be a transformative financial impact Our franchise royalties and fees will increase and we will rationalize our unallocated GNA expenses and the Joint Corp will be more profitable
Sanjiv Razdan: And with that, I'll turn the call back over to you, Sanjiv.
Thanks, Jake.
Sanjiv Razdan: Turning to Slide 19, we have quite a bit about which to be excited.
Sanjiv Razdan: In addition to having a large and growing market, there is a significant white space and we have only scratched the surface.
The joint represents approximately six to seven percent of that.
Sanjiv Razdan: More importantly, with the belief of many that our current healthcare and insurance system is broken, in this backdrop, our mission to improve the quality of life through routine and affordable chiropractic care is incredibly relevant.
Sanjiv Razdan: Our Concert Style Service Model in Convenient Retail Locations at an affordable price resonates with patients seeking health and wellness.
1950
Sanjiv Razdan: We are only 50% off the way there and of course we have the rest of the world to consider as well.
Sanjiv Razdan: We have an attractive asset-life model. This is true for the company, as well as our franchisees. The joint has one of the lowest initial buildouts amongst franchises, compared to pilates studios, Saunas, gyms, and so on.
Sanjiv Razdan: Further, the joint as a company will benefit economically as we shift to a pure franchise concept and no longer carrying the cost of operating clinics.
Sanjiv Razdan: Third, a positive patient experience and a photo-membership deliver strong recurring revenue.
Sanjiv Razdan: In 2024, 85% of our revenue was contributed by memberships, and we are determined by enhancing the experience and working to elongate the average time of a membership, all of which support the positive metric.
Sanjiv Razdan: Both as the first to revolutionize access to affordable quality caropractic care, we have built a premier brand scale and first mover advantages.
and now we have a new detailed strategic plan.
Sanjiv Razdan: In 2025, we have already begun. We will strengthen our core and reignite growth through patient-facing technology, dynamic revenue management and advanced marketing. We will improve profitability through our refranchising and cost rationalization.
Learning to slide 20.
Sanjiv Razdan: Well, we may not have a material public update for each initiative every quarter. I can assure you we will be doing plenty on a daily basis.
Sanjiv Razdan: We are committed to driving success, which we will define as growth in nephew clinic openings, system wide sales, comp sales and adjusted EBITDA.
Sanjiv Razdan: We have a very talented and committed Dean focused on execution and I'm confident we will emerge as a stronger company.
Sanjiv Razdan: Before we open for questions, I would like to welcome Craig Sherwood, a new Senior Vice President of Development.
Sanjiv Razdan: With over 25 years experience and franchise development in the health and wellness and QSR industries, Craig's expertise spans the full development lifecycle including franchise recruitment, market planning and real estate strategy, site selection and design and construction.
Sanjiv Razdan: At the joint, he will be responsible for leading franchise sales and new clinic development as well as building our enterprise accounts business.
Sanjiv Razdan: I would like to congratulate Dr. Anthony Tram, one of our multi-unit franchisees for being named 2024 franchisee of the year by the International Franchise Association at their 65th IFA Convention in Las Vegas last month.
Sanjiv Razdan: The franchisee of the year awards are given to the top franchises from IFA member brands across industries from around the country and the world. Well done, Dr. Tran.
Sanjiv Razdan: also in January . We announced we won another accolade. Franchise times recognise the joint as number 38 on the Fast and Serious 2025, the annual list of the smartest growing franchises.
Laft
and certainly not least.
Sanjiv Razdan: I would like to invite you to meet us at the 37th annual Roth Conference next week.
With that operator, I am ready to begin Q&A.
Sanjiv Razdan: Thank you. We will now begin the question and answer session. To ask a question you may press star then one on your touchtone phone. If you are using a speaker phone please pick up your handset before pressing the keys.
Sanjiv Razdan: If at any time your question has been addressed and you would like to withdraw your question, please press star and then two.
Speaker Change: And your first question today will come from Jeff Van Sinderen with Be Riley Securities. Please go ahead.
Hi, everyone. I guess I wanted to start with...
Any comments you have around?
Speaker Change: potentially maybe seeing a little bit slower consumer behavior in Q1 metrics, and then as a follow-up to that, any thoughts on how we might model the quarterly progression this year?
Jeff, yes.
Conduomaz,
responding to the...
Stubborn inflation and the continued uncertainty in the macros.
Speaker Change: Their household income is somewhere between $50,000 and $100,000 annually, which makes us somewhat susceptible.
to the impact.
With that said, we've just provided you...
with Guidance,
Jake: and I'll turn that over to Jake to add any additional color.
Jake: As we think about the progression and I'll focus the comments really on on the top line system wide growth sales
Jake: You know, looking at the promotional calendar, we don't have too much shake up in terms of our large-scale promotion, so I would expect
Jake: The cadence of our sales to be very similar to years past, really are two largest promotions
Jake: Our Package Promotion, our Back Friday Promotion in November , as well as our annual wellness drives in December , and those always drive incremental cells in the fourth quarter. But I would expect the cadence to be very similar to years past.
[inaudible]
Jake: Okay, great. And then anything any color you can give us on kind of retention, rates, churn, attrition, what you're seeing and can trends there with patients.
Speaker Change: Yeah, I can I can start and Sanjiv Tacklein I think as we look at you know our core metrics new patients conversion under our subscription model and attrition
Jake: You know, I think we ended the year on a strong note as it relates to conversion and our attrition.
Jake: really stayed pretty flat to where we were seeing it for the most part in Q4.
Speaker Change: We did start to implement some of our fringe pricing increases, what Sanjiv referred to as that dynamic revenue management.
Speaker Change: really increasing our walk-in rate at the tail end of fourth quarter. And really what we're seeing is that drive an increased conversion to our overall wellness plan. So those active members in our system which we're finding encouraging. We're looking forward to seeing you again.
Speaker Change: so far in January and February . Our attrition is...
Speaker Change: in slightly January for us is always a slight uptick compared to the round rates in the fourth quarter, so not out of the ordinary there. And we saw it start to level off in February . So conversion remains strong. I think we need to stay critically focused on our new patients.
Speaker Change: and make sure we're continuing to drive clinics into our system. Yeah, you've captured everything, Jake. Nothing to add to that.
Speaker Change: Okay, great. And then, if I could squeeze in one more, just...
Speaker Change: I know you said the vast majority of corporate clinics are under LOI. Is there a novel we can put back and you just refresh our memory of how many?
Speaker Change: are how many are to go away or be under LOI and how many remain and then maybe what the time frame is around that process. Thank you very much.
Speaker Change: So we have 125 corporate clinics and our intent is to refranchise all 125 35
Speaker Change: The vast majority of them, Jeff, are under LOI negotiations at this point.
Speaker Change: The ones that are not were actively addressing that situation as well.
Speaker Change: Okay, great. Thanks for taking my questions. I'll get the rust off fire.
Okay.
Jeremy Hamblin: After your next question is they will come from Jeremy Hamlin with Craig Hallum Capital Group. Please go ahead.
Jeremy Hamblin: Thanks and congrats on making progress here on the refranchising efforts. I want to come back to follow up just question on kind of trends and impact that we're seeing across.
Jeremy Hamblin: Consumer Services Companies. You know, first, your guidance for the years for systems aims or sales to be up, you know, mid-single digit. I wanted to get a sense for, you know, how you're trading, you're trending kind of, you're to date, if...
Jeremy Hamblin: You know, A, if your system seems for sales are positive, you're today, and then kind of related to that.
Jeremy Hamblin: Are they kind of at or below the full year guidance of mid single digit just given that your your compares are quite a bit tougher in the second half of the year than they are in the first half of the year. [inaudible]
David Barnard, George Kelly, Anthony Vendetti,
Jeremy Hamblin: Sure. Yeah, so far the trends in January are consistent with the figures that we saw.
Jeremy Hamblin: in the tail end of Q4, so that run rate continued. February was a little bit odd for us in that we're rolling over Elite Beer, so one additional day of sales last year.
as well as we ran a small ...
Jeremy Hamblin: Incremental New Member Promotion, which provided a slight discount to the first month of fees and then as they come back for that second month, they jump back on to the standard rate. So not a great comparative in terms of February period over period, but so far we're seeing consistency and I would expect you one to be consistent with.
Jeremy Hamblin: Kind of where we were trending at the tail end of last year. [inaudible]
Got it, that's helpful.
Jeremy Hamblin: On those, you know, LOIs, I recognize that you're still working on a lot of them, but, you know, can you give us a sense from, you know, whether it's a measure of EBITDA or...
Jeremy Hamblin: You know, sail, revenue per clinic, any color you might be able to share on the kind of the value you expect to recognize from selling the 125 units. [inaudible]
Jeremy Sensware, [inaudible]
actively negotiating the L.O.I.s right now.
Jeremy Hamblin: It's hard to provide a lot of detail around.
the multiple that we are negotiating. [inaudible]
Jeremy Hamblin: I think I'll add Jake, add any color if you'd like to do that. Yeah, I'll walk you through the construct in terms of
Speaker Change: You know, how the majority of bidders are looking at the portfolio. Again, the vast majority of the units are profitable. Alright, so most of the bidders are looking at it.
Speaker Change: as a multiple of EBITDA. They're looking at it through a lens of...
Speaker Change: Doesn't factor in the royalty streams that they'll have to take on.
Speaker Change: So it's really an adjusted EBITDA number based on our Corporate Clinic, Corporate Reformers, and then they're applying multiple against that and assuming because we're marketing them in larger clusters, that there will be a slight outside the 4-Wall GNA burden.
Speaker Change: So really that's the construct in terms of how a lot of the people viewed the valuation.
Got it.
Speaker Change: and then wanted to come back to a questionite. So there's a little bit of noise here obviously with continuing versus discontinued operations, but if we look at just continuing operations.
Speaker Change: The revenues were up about 1.7 million euro a year. Your sales and marketing cost was up about a million dollars related to that 1.7 million dollars in revenue growth and just coming back to
Speaker Change: you know, kind of customer acquisition costs and what the kind of leverage point.
Speaker Change: that you might expect to see, you know, for kind of future revenue growth and, you know, the types of costs, especially sales and marketing that you would expect to have to generate, you know, every incremental dollar of revenue growth.
Speaker Change: Yeah, a couple dynamics there. I think the first that I would point out is we did make the strategic investment to increase our working media spend to try to provide some tailwind to some of the marketing campaigns that we launched.
Speaker Change: So, I think you're seeing that slight incremental investment, you know, in the full year line, we had our biennial national conference, so you're naturally seeing a little bit more flow through in the years that we have that conference.
and then...
Speaker Change: You know, finally, at the end of the day, we went through an RFP process, and are in the process of onboarding a new marketing agency, and so right now we've got some, you know, what I'll call initial kind of transitionary or startup costs as we look to onboard that new agency. And so those are some of the incremental. And so that's all.
Speaker Change: Investments in the Period. What I would tell you on a macro basis is, you know, I think where we're seeing some of the new new patient pressure is in that organically. And so what that's causing is
Speaker Change: is a slight shift to have to put those paid media dollars to work, and I think you're seeing some of that impact as well.
Speaker Change: Got it, got it. And then I want to come back to the kind of pricing strategy here and just get a sense for, you know, you have, I think you've taken maybe three or possibly four price increases over the last seven to eight years.
in total. [inaudible]
Thank you. Bye.
Speaker Change: What's called pricing years, you know, so how many are still on 2017 or 2019 pricing?
versus, yeah, and all three praise. Yeah, all the last praise increase.
https://www.youtube.com or the link in the description.
Speaker Change: Correct, and March of 22 is the last time we took a wholesale price increase in terms of all of our tiers across the country.
Speaker Change: and that's really on that wellness plan figure. As I mentioned in Q4, we increased the walk-in rate.
Speaker Change: but we'll continue to tinker with that pricing model throughout the year as we think about.
Speaker Change: The membership for 2024, I'll break it into two buckets for you.
Speaker Change: by the end of the year. We had about 80% of our active members.
Speaker Change: that were on our standard rate and about 20% that were on some level of a legacy rate.
Speaker Change: and as you mentioned, it kind of cascades down. The majority of those being one-tiered down or about a $10 discount to the posted rate today.
Speaker Change: and it gets pretty small thereafter. So, you know, the vast majority are on the standardized price, but we do still have, you know, a good chunk of those legacy members around. Just to add to that.
What?
Speaker Change: What we're, how we're thinking about this differently in terms of dynamic revenue management is essentially solving what you've called out. The last time we took meaningful pricing on our wellness programs is March 2022.
Speaker Change: We continue to see inflation in the model and as I had mentioned in our last call that has put pressure not taking pricing to offset the inflationary pricing inflationary cost.
Speaker Change: Hashrunk, Clinic-level margins. So what we're pivoting towards is this dynamic revenue management concept, which means that we do not need to have this one rip the bandaid and take pricing on all pricing bands.
Speaker Change: We just took pricing on the walk-in price which has had a very positive effect for us by increasing conversion rates.
Speaker Change: and we also don't think that we always need to take that sort of pricing in $10 increments on our wellness plans. That could be happening in much smaller discrete numbers and we could be also engaging our legacy the 20%.
Speaker Change: Wellness Plan members that are on legacy pricing to explore how much pricing we could take with them as well. So now this is going to be an ongoing process for us through 2025 and beyond.
Speaker Change: Great, thanks for taking all the questions and good luck this year.
Thanks, Jeremy. Thank you.
Speaker Change: And your next question today will come from George Kelly with Roth Capital Partners. Please go ahead.
Everyone, thanks for taking my questions.
George Kelly: Um, maybe if we could start just as a follow up on the refranchising uh, discussion.
George Kelly: Anyway, you can help us understand better just the timing. I understand you're in the final stages. It seems like you've been in the final stages for a couple months.
George Kelly: So just wondering, like, should this be something that's mostly wrapped up in the first half for just any kind of context that would be helpful?
[inaudible]
George, absolutely, theā¦
As you know that we have now got...
The 125 Corporate Clinics
Marklinix, so it's just taking...
George Kelly: Time in terms of due diligence, etc. We hope that we will be able to wrap this up closer to the first half than in the second half of the year. So that is what our intent is. We hope that we will be able to wrap this up closer to the second half of the year.
Speaker Change: Okay. Okay. And then second question, Sanjiv, you talked, I think in response to one of the part, maybe Jeremy's question about four wall margin dynamics.
Sanjiv Razdan: Ryan, I guess the question is, have you seen any stability there?
Speaker Change: and how aggressively do you plan to take pricing this year to help stabilize that line or is it still, you know, is the labor environment still challenging and sort of, well, I guess what are you seeing in for war?
Yeah.
Speaker Change: So we're actively now collecting franchisey PNLs for 2024, so we'll get as once we have them in those submissions, we'll have a much more informed view of what is happening in our franchisey PNLs, but I can give you our current understanding.
Speaker Change: I think the labor market has been relatively stable through 2024. We are seeing the cost of hiring our doctors of chiropractic remain pretty stable as the cost of our wellness coordinators which is really what drives the the main variable cost in our
Clinic Economic Model. So, we're seeing stability there.
in terms of the pricing, I think the ...
about striking the right balance between optimizingā¦
The Ba
Speaker Change: Visit value that we can through pricing but also make sure that we're not.
and creating a value problem. So that is why what we're doing is testing our...
Speaker Change: pricing models in in a few different markets with our franchisees to see how much permission we have. I wouldn't say that our plan is to take aggressive pricing but to take ongoing pricing that allows us to just constantly keep improving the...
Speaker Change: Cleaning Profit Profile on a gentle basis, just constantly optimizing our opportunity.
George Kelly: Yeah, to put it in context to the comp guide, George, I think you're looking at about one and a half to maybe two percent on the high side being
Okay. Okay. Um...
George Kelly: That's hopeful. And then last one for me is on a comment from your prepared remarks about new services and retail products, just different things that you're exploring.
George Kelly: How far along is that exploration? Is that something we could see this year and can you talk a little bit about more what services and retail products are under construction?
George Kelly: Yeah, so as I explained in my prepared remarks, George D.
George Kelly: 2025, the vast majority of this year and going into some period of 2026 as well, we're calling it a joint 2.0 and the main focus of joint 2.0 is to strengthen up for and reignite growth.
George Kelly: For that, I have outlined the various revenue drivers and strengthening clinic economic drivers that we are focusing on.
Joint 3.0 will come maybe 12 to 18 months later.
George Kelly: which is where we anticipate adding on incremental revenue layers from additional service
George Kelly: New category usage occasions, potentially retail opportunity, and potentially unlocking
George Kelly: and Enterprise Business Accounts. So those are the various levers in consideration for our three point of phase. But to give you a real life example of what we mean by some kind of a service, I'll give you the...
George Kelly: Optimize in a meaningful way the opportunity to be a provider of chiropractic treatment for
and Create a Meaningful .
Use the education from our patients around that.
Or it could so that is just a thing.
User Education Broadening,
George Kelly: and incremental revenue, but also we could look at providing clinical care.
George Kelly: An additional treat one that takes, let's say, a two to three minute incremental over the current adjustment time and something that the patients would benefit from that we can charge for. So all of that will be explored this year.
George Kelly: But we're not advanced and to an extent of being ready to launch anything, I think the management energy and focus is going to go to just strengthen our core and reignite growth this year.
Mm-hmm.
Speaker Change: And your next question today will come from Anthony Vendetti with Maxim Group. Please go ahead.
All of the company-owned clinics, the hundred-plus.
or in discontinued ops. This is...
Speaker Change: The system wide sells, and then what you're going to recognize as revenues is going to be the service and royalty feeds. Also that $550 to $570 million.
Speaker Change: So I guess the question I have is what is the current percentage?
Speaker Change: of Royal T.E. fees and service fees associated with that $550 to $570 million.
or what do you expect it to be in 25?
Yeah, I think...
Speaker Change: Couple points to put out there because there's a lot of moving pieces, right? 2025 for us is still going to be that transitionary year where you've got your corporate clinics around for about half the year. And then, you know,
incrementally flipping to those franchise royalties and fees.
Speaker Change: and in the back half of the year as we complete that refranchising effort. So, you'll still kind of have a mixed year in terms of your overall gap revenues, which is why we didn't put out a gap revenue guide, just, you know, not having full line of sight into when the timing of those transactions will...
Will Formerly Close
So, as you think about the...
Speaker Change: The fiscal 2024 period. You can look at our discontinued operations, kind of carve out schedule within the deck. And you can see that we add 70.2 million of gap revenues related to those corporate clinics.
Speaker Change: It's closely correlated to the growth sales from those clinics, we do have to defer a portion of it.
Speaker Change: for Gap purposes. So, you know, maybe the growth sales were slightly higher than that, but the easiest way to contextualize is just to take that 70 million.
Speaker Change: from our corporate clinics and say, okay, that turns into roughly a 10 and a half percent royalty structure. When you have your 7 percent royalty, your 2 percent NMF contribution and your technology fee.
Speaker Change: So that's a way to kind of get a semblance for the annualized rate of what will flip into that royalty stream.
Speaker Change: I think the other thing that we want to critically call out is that, you know, all the historical presentations of the continuing operations.
Speaker Change: don't reflect all the GNA rationalization that's still to come. That is the critical focus of management is to make sure that we're right sizing the GNA so that we can at the end of the re-franchising effort be a more profitable business than we were before.
Speaker Change: and so you're not really seeing that rationalization in the historical presentations, but those GNA figures, you know, we will take a pretty good swing at as we conclude the refranchising effort.
Speaker Change: Do you have an estimate, just as a follow-up on there, once the refranchising effort is complete, whether it's a dollar amount or percent that's going to come out of corporate S.G.A.
Speaker Change: We're not putting a forward guide out on that piece of it. The directional signal is that on an annualized basis we expect to have more adjusted EBITDA than we did under our current kind of mixed structure.
Speaker Change: Okay, great. Alright, thanks so much. I'll have that in the queue. Appreciate it.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Sanjiv Razdan for any closing remarks.
[inaudible]
Go to www.Flydreamers.com for all of your music needs!
Thank you for joining us.
Speaker Change: I look forward to getting to know you at conferences and non-deal road shows.
Speaker Change: Have a good day and know that after joint, we always have your back.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
David Barnard, George Kelly, Anthony Vendetti, Ryan Kimbrel, George Kelly, Anthony Vendetti, Ryan Kimbrel, John
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